U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X[ ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT
For the Fiscal Year Ended December 31, 1999
Commission File No. 0-29582
UNITED COMMUNITY HOLDINGS, INC.
(Name of Small Business Issuer as specified in its Charter)
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Nevada 16910 Dallas Parkway, Suite 100, Dallas, Texas 75248 75-2300997
(State or Other Jurisdiction (Address of Principal Executive Office, (IRS Employer
of incorporation) including Zip Code) Identification No.)
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(972) 248-1922
(Registrant's telephone number, including area code)
(Registrant's former name: Pacific Great China Co., Ltd.)
Securities Registered under Section 12(b) of the Exchange Act:
Title of each Class Name of Each Exchange on which Registered
None None
Securities registered Under Section 12(g) of the Exchange Act: Common Stock,
$0.00001 Par Value
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of management's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ X ]
State issuer's revenues for its most recent fiscal year: $-0-.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $-0-(stock is not quoted).
As of March 27, 1999 the issuer had 8,000,818 shares of common stock issued and
outstanding.
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PART 1
Item 1 DESCRIPTION OF THE BUSINESS
General
History of Corporations forming the Registrant
This registrant was incorporated on May 31, 1989 with the name
Professionalistics, Inc. under the laws of the State of Delaware. It changed its
name to Pacific Great China Co., Ltd. (herein "PGCC") on May 8, 1996 in
anticipation of a planned business acquisition or merger transaction.
Subsequently, during 1996, the anticipated business acquisition or merger
transaction was abandoned and canceled. PGCC's principal shareholder was Halter
Capital Corporation, a Delaware corporation specializing in providing consulting
services, especially to small businesses.
On December 17, 1998 PGCC changed its state of incorporation from
Delaware to Nevada by means of a merger with and into United Community Holdings,
Inc., a Nevada corporation (herein "UCHI") formed solely for the purpose of
effecting the reincorporation. The Certificate of Incorporation and Bylaws of
UCHI are the Certificate of Incorporation and Bylaws of the surviving
corporation. Such Certificate of Incorporation changed the company's name to
United Community Holdings, Inc. and modified the company's capital structure to
allow for the issuance of 50,000,000 total equity shares, consisting of
50,000,000 shares of common stock with a par value of $0.00001 per share (herein
the "Common Stock).
Prior to its merger with PGCC, UCHI did not engage in any business
activities and the business purpose of UCHI was primarily to seek out and obtain
an acquisition or merger transaction whereby its stockholders would benefit by
owning an interest in a viable business enterprise. Since UCHI had no operations
or significant assets, its principal potential for profits came solely from the
business or operations it would receive in an acquisition or merger transaction.
A merger or acquisition transaction with UCHI would allow a privately held
company to become a publicly owned corporation with a broad shareholder base
without experiencing the substantial time delays and financial expenditures
imposed by some of the filing requirements of federal and state securities laws.
Rosemont Gardens Funeral Chapel-Cemetery, Inc. (herein "Rosemont") was
incorporated on March 4, 1994 under the laws of the State of Mississippi.
Rosemont has an authorized capital stock of 10,000 shares of common stock, of
which only 1000 shares are issued and outstanding. All of its outstanding shares
were originally owned by James F. Robinson. Rosemont founded in 1994 a funeral
home and cemetery in Jackson, Mississippi that it operates. This business is
known as Rosemont Gardens Memorial Park. See "Description of UCHI's Business and
Plans for Development", below.
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Control of UCHI Purchased by Robinson
In January 1999, pursuant to a Stock Purchase Agreement signed on
November 19, 1998, James F. Robinson (herein "Robinson") obtained a controlling
interest in UCHI by acquiring from Halter Capital Corporation 7,200,000 shares,
or approximately 90% of the issued and outstanding common stock, of UCHI.
Robinson paid $50,000 cash as consideration for that stock and for other
services to be rendered by Halter Capital Corporation ("HCC"). As of December
17, 1998 Pacific Great China Co., Ltd., a Delaware corporation, had more than
700 shareholders but no assets and no liabilities. On that same date PGCC
executed a Merger Agreement with UCHI whereby PGCC was merged with and into
UCHI, with one share of UCHI's common stock being exchanged for each share of
common stock of PGCC then outstanding. As a result, United Community Holdings,
Inc., a Nevada corporation, is the surviving corporation resulting from that
merger and the registrant filing this registration statement.
Acquisition of Rosemont Gardens Funeral Chapel-Cemetery, Inc.
As of January 1, 1999, Robinson and UCHI entered into a Stock Purchase
Agreement (under that date) whereby Robinson sold all of the stock in Rosemont
which he then owned (representing 100% of the issued and outstanding shares of
Rosemont) to UCHI in exchange for 1000 shares of UCHI's common stock. As a
result of this transaction Rosemont has become a wholly owned subsidiary of UCHI
and at present it is its only operating subsidiary.
As discussed above, the reason UCHI entered into this transaction with
Robinson was so that it could complete an acquisition or merger transaction
whereby its shareholders would benefit by owning an interest in a viable
business enterprise. Specifically, UCHI desired to enter into a transaction with
a company such as Rosemont that on a consolidated basis either presently
qualified, or in the near future would qualify, for listing on the Nasdaq
SmallCap Market. Upon analysis of Robinson's business plan for Rosemont (See
"Description of UCHI's Business and Plans for Development", below), it was
determined that UCHI had specific plans to meet the assets and net worth
criteria to be listed on the Nasdaq SmallCap Market. For these reasons, UCHI
believed it could best enhance its shareholders' interests in the registrant by
consummating this transaction with Robinson.
UCHI's principal office, as well as the principal office of Rosemont,
is located at 3935 Interstate 55 South, Jackson, Mississippi 39212. The
telephone number for both is (601) 371-0009.
Current Operations of UCHI
UCHI continues to analyze the dramatically and rapidly changing
industry conditions and to develop proactive business strategies. As the
acquisition landscape began challenging following negative announcements by
larger industry players during the year, UCHI started to identify strategies. We
intend to prepare our company for significant and opportunistic growth due to
our belief that there will be dramatic ownership restructuring of previously
consolidated industry assets by others over the next 12 to 24 months.
Accordingly, we will seek to align ourselves with one or more capital partners
that share our view of the opportunities in the industry.
UCHI currently owns 100% of the stock of Rosemont Gardens Funeral
Chapel-Cemetery, Inc. Rosemont Gardens currently operates in Jackson,
Mississippi where cremation only represents 2% of services as compared to as
much as 50% in some areas. We have aggressively moved into the funeral and
cemetery business and are servicing its pre-need and at-need customers. We also
operate a vault manufacturing section which also provides vault merchandise to
our customers on-site. We furnish transportation for our at-need funeral
services and also have available a mortuary and/or embalming facility to
facilitate the funeral home's embalming services.
Rosemont Gardens has doubled its funeral volume over 1998 and is poised
to make a significant gain in the Year 2000. Administrative offices are
maintained with a staff of personnel for the purposes of keeping records of
pre-need sales and customer services. Funeral directors are on staff to conduct
the day to day funeral services.
Certain statements made herein or elsewhere by, or on behalf of, the
Company that are not historical facts are intended to be forward-looking
statements within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995.
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Description of UCHI's Business and Plans for Development
UCHI's strategic plan is to acquire and/or construct, own and operate
funeral homes, cemeteries and pre-arrangement centers at various strategically
selected sites in the Southeastern portion of the United States. Each geographic
area selected for development of these community-based funeral homes/cemetery
operations and pre-need centers will be developed in a "cluster" of facilities.
The exact composition of each cluster will vary depending on the anticipated
demands for the company's services in each geographic area selected and the
results of a study to be conducted by UCHI of various demographic factors, as
well as the present and potential markets for funeral homes, cemeteries and
pre-arrangement service centers. The clustering of existing operating facilities
which have been acquired along with the construction of economical satellite
facilities and pre-arrangement sales centers will provide UCHI with the
appearance of an "overnight" presence in the communities selected for
development. Clustering these facilities will also help to ensure that an
adequate cash flow can be generated by the facilities in each cluster to assure
financial independence and reduce the need for cash infusions from other
operating clusters. This clustering approach and the use of standardized designs
for the physical facilities will limit construction costs and increase
operational economies. The cluster concept will permit the economical sharing of
personnel and other resources among the facilities in each cluster, for example,
embalming facilities, hearses, cremation equipment, administrative and financial
services, etc. Actual clusters will vary in configuration from area to area
depending on the availability of existing operating facilities, the population
of the geographic area, the perceived needs in the area and other factors.
During its initial development phase, UCHI will seek to acquire
ownership interests in existing funeral and/or cemetery operations and
facilities, including undeveloped acreage to be used for new funeral and/or
cemetery operations, all of which will be located in the Southeastern portion of
the United States. UCHI may acquire such properties and operations directly
using leverage, newly raised capital or its own internal funds, or by the
issuance of additional shares of stock of UCHI which are currently authorized
but unissued. There is no assurance that UCHI will acquire ownership of, or a
controlling interest in, any of the aforementioned types of properties or
businesses and, as of the date of this registration statement, UCHI has no
contracts or understandings to acquire any such properties or businesses and has
not yet held any discussions which might result in any such acquisitions or
purchases. While UCHI's management is hopeful that such acquisitions or
purchases can be consummated on favorable terms, it can make no such
representations.
Management believes that there are opportunities for UCHI to acquire
ownership interests in several existing operations in its industry that are
under-performing in their markets due to ineffective management and marketing or
substandard facilities. UCHI may attempt to acquire such operations and, by
using UCHI's experienced staff of professionals, to increase the efficiency and
profitability of such operations and/or remodel the existing facilities, while
creating a larger network of funeral homes and cemeteries that can benefit from
UCHI's unique approach to serving its clientele.
At the present time UCHI has not identified any specific business
opportunity that it plans to pursue, nor has UCHI reached any agreement or
definitive understanding with any person concerning an acquisition. Moreover,
none of UCHI's officers, directors or promoters, and no affiliate of UCHI, has
had any preliminary contact or discussions with a representative of any other
company regarding the possibility of an acquisition or merger between UCHI and
such other company. No assurance can be given that UCHI will be successful in
finding or acquiring a desirable business opportunity or that any acquisition
that occurs will be on terms that are favorable to UCHI and its stockholders,
given the fact that only limited funds are currently available for acquisitions
and that UCHI does not know whether it can raise the additional capital which it
believes is necessary to expand.
It is anticipated that business opportunities will come to UCHI's
attention from various sources, including its officers and directors, its
stockholders, professional advisors such as attorneys and accountants,
securities broker-dealers, venture capitalists, members of the financial
community, and others who may present unsolicited proposals. UCHI has no plans,
understandings, agreements, or commitments with any individual for such person
to act as a finder of opportunities for UCHI.
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UCHI does not foresee that it would purchase an interest in or enter
into a contract with any business with which an officer or director of UCHI is
affiliated. Should UCHI's management determine in the future, contrary to
management's current expectations, that a transaction with an affiliate would be
in the best interests of UCHI and its stockholders, UCHI is permitted by Nevada
law to enter into such a transaction if:
(1) The material facts as to the relationship or interest of the
affiliate and as to the contract or transactions are disclosed or are known
to the Board of Directors, and the Board in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors constitute
less than a quorum; or
(2) The material facts as to the relationship or interest of the
affiliate and as to the contract or transaction are disclosed or are known
to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
(3) The contract or transaction is fair as to UCHI as of the time it is
authorized, approved or ratified, by the Board of Directors or the
stockholders.
The analysis of business opportunities will be undertaken by or under
the supervision of UCHI's executive officers and directors. See "Management."
UCHI anticipates that it will consider, among other things, the following
factors:
(1) Potential for growth and profitability, and anticipated market
expansion;
(2) Competitive position, as compared to other companies of similar
size and experience within the industry segment as well as within the
industry as a whole;
(3) Strength and diversity of existing management or management
prospects that are scheduled for recruitment;
(4) Capital requirements and anticipated availability of required
funds, to be provided by UCHI or from operations, through the sale of
additional securities, through joint ventures or similar arrangements, or
from other sources;
(5) The cost of participation by UCHI as compared to the perceived
tangible and intangible values and potential of such an acquisition;
(6) The extent to which the business opportunity can be advanced;
(7) UCHI's perception of how any particular business opportunity will
be received by the investment community and by UCHI's stockholders;
(8) The accessibility of required management expertise, personnel,
services, professional assistance, and other required items; and
(9) Whether the financial condition of the business opportunity would
be, or would have a significant prospect in the foreseeable future to
become, such as to permit the securities of UCHI, following the business
combination, to qualify to be listed on a national automated securities
quotation system, such as Nasdaq.
UCHI has no employees but Rosemont currently employs approximately ten
people on a full time basis. No employees are members of collective bargaining
units.
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Environmental Matters
UCHI is not aware of any environmental liability relating to its facilities or
operations that would have a material adverse affect on UCHI, its business,
assets or results of operations.
Inflation
Inflation has not historically been a material effect on UCHI's operations and
is not expected to have a material impact on the company or its operations in
the future.
Competition
The funeral home/cemetery industry in the United States has historically been
highly fragmented, consisting of numerous small operations, typically owned by a
family with strong ties to its local geographic service area. Many of these
family-owned businesses do not have successors who are active in the management
of the business. Based on past experience with such owners and the dynamics of
the industry, UCHI believes that many of these business es can be acquired at
attractive cash flow multiples.
Nevertheless, in the past twenty years there has been a growing trend in this
industry toward mergers and consolidation and several large corporations have
acquired thousands of formerly independent operators. While some of these giant
competitors have recently evidenced problems (apparently resulting from
difficulties in economically assimilating their past acquisitions and/or making
acquisitions that were priced unrealistically), these large competitors have
assets, readily marketable stock, cash and other advantages in negotiating
potential merger or acquisition transactions that UCHI, at its current size, can
not effectively counter.
Item 2. Description of Property
Jackson, Mississippi Property
Rosemont Gardens Memorial Park, which is owned by UCHI's subsidiary,
Rosemont Gardens Funeral Chapel-Cemetery, Inc. is situated on 106 acres of land
located within the city limits of Jackson, Mississippi. It is a combination
funeral home and perpetual care cemetery and mausoleum. The funeral home
contains approximately 17,000 square feet and is designed in the fashion of an
ante-bellum mansion. Its dramatic presentation - high upon a hill bordering
Interstate 55 - offers impressive visibility and has enabled rapid name
recognition. It has been designed to be the "flagship" of a national chain of
community funeral homes and pre-arrangement centers. This facility is currently
large enough to accommodate the financial, administrative and training
facilities that UCHI and its subsidiary will need for several years.
Item 3. Legal Proceedings.
The Company is not a party to any material pending litigation nor is it
aware of any threatened legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to securities holders during the year ended
December 31, 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
The stock does not trade on any exchange or the OTC market. There is no
known public market for this security. As of March 15, 1999, there were 681
holders on record of the Company's common stock, holding a total of 8,000,818
shares.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(1) Caution Regarding Forward-Looking Information
This quarterly report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to the Company or management. When used in this document, the words
"anticipate," "believe," "estimate," "expect" and "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current view of
the Company regarding future events and are subject to certain risks,
uncertainties and assumptions, including the risks and uncertainties noted.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. In each instance, forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.
(2) General Information
United Community Holdings, Inc. (Company) was incorporated under the corporate
name of Professionalistics, Inc. on May 31, 1989, under the laws of the State of
Delaware, as a wholly-owned subsidiary of Halter Venture Corporation, a
publicly-owned corporation . The Company changed its name to Pacific Great China
Co., Ltd. on May 8, 1996 as a result of an action by the Company's Board of
Directors in anticipation of a business acquisition or merger transaction.
Subsequently, this anticipated business acquisition or merger transaction was
mutually canceled by both parties.
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On December 17, 1998, the Company changed its state of Incorporation from
Delaware to Nevada by means of a merger with and into a Nevada corporation
formed solely for the purpose of effecting the reincorporation. The Articles of
Incorporation and Bylaws of the Nevada corporation are the Articles of
Incorporation and Bylaws of the surviving corporation. Such Articles of
Incorporation did not change the capital structure of the Company. The effect of
this action also changed the Company's name to United Community Holdings, Inc.
On November 19, 1998, the Company's then majority shareholder sold 7,200,000
shares of the 7,750,129 shares held by the then majority shareholder to an
unrelated third party in anticipation of a business combination transaction
whereby the Company would merge with and into a privately held operating company
during the first quarter of 1999.
On February 28, 1999, effective as of January 1, 1999, the Company exchanged
1,000 shares of restricted, unregistered common stock with its then current
majority shareholder for 100.0% of the issued and outstanding stock of Rosemont
Gardens Funeral Chapel-Cemetery, Inc. (a Mississippi corporation) (Rosemont). At
closing, Rosemont became a wholly-owned subsidiary of the Company
The acquisition of Rosemont by the Company was accounted in accordance with the
provisions of Interpretation #39 of Accounting Principles Board Opinion #16,
whereby the combination of entities under common control are accounted for on an
"as-if-pooled" basis with the Company being the parent company and Rosemont
being a wholly-owned subsidiary. These consolidated entities are referred to as
Company. Accordingly, the consolidated financial statements of the Company and
Rosemont represent the historical consolidated financial statements as of the
first day of the first period presented.
Rosemont Gardens Funeral Chapel-Cemetery, Inc. (Rosemont) was originally
incorporated on March 4, 1994 under the laws of the State of Mississippi.
Rosemont's operations consist of a funeral home and cemetery operation in
Jackson, Mississippi. Rosemont personnel at the funeral service location provide
all professional services related to funerals, including the use of funeral
facilities and motor vehicles. Funeral related merchandise is sold at the
funeral service location. Rosemont sells prearranged funeral services whereby a
customer contractually agrees to the terms, conditions and price of a funeral to
be performed at an unknown future date at the time the contract is executed.
Rosemont's cemetery provides cemetery interment rights (including mausoleum
crypts and lawn spaces) and certain merchandise including stone and bronze
memorials and burial vaults. These items may be sold on either a pre-need or an
at-need basis. Rosemont personnel at the cemetery site perform interment
services and provide management and maintenance of the cemetery grounds.
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(3) Results of Operations
Year ended December 31, 1999 compared to the year ended December 31, 1998
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The operations for the year ended December 31, 1999 compared to the year ended
December 31, 1998 show a continued maturation and market acceptance of the
products and operations of the Company's Rosemont subsidiary. Recognized
revenues for 1999 were approximately $400,000 as compared to approximately
$251,000 for the preceding year. The Company recognizes revenues upon the
provision of funeral services, sale of funeral, cemetery or related merchandise
or upon the receipt of at least 25% of the initial sales price for cemetery
spaces and/or crypts.
The Company incurred cost of sales and providing services of approximately
$183,000 and $168,000, respectively, for the years ended December 31, 1999 and
1998. Costs related to cemetery merchandise and funeral services are recognized
at the time the service is provided. Sales commissions, for both at-need and
pre-need funeral sales and sales of cemetery spaces and/or crypts, are charged
to expense, less a nominal percentage, in the month the related contract is
recorded. The allocated cost of cemetery spaces and/or crypts is charged to
operations at the time that at least 25% of the initial contract price is
received by the Company in cash. Total commissions expense, principally incurred
on the sales of pre-need contracts for funeral services and/or cemetery spaces
or crypts was approximately $61,000 and $78,000, respectively, during 1999 and
1998.
The Company realized gross profits of approximately $217,000 (54.286%) for
Calendar 1999 as compared to approximately $83,000 (33.09%) for Calendar 1998.
This change in gross profit percentage is due to management's value-based
product pricing policies to provide quality funeral and burial services to the
general public and the direct charge to operations for commissions at the
inception of a long-term receivable for either pre- need funeral services or
cemetery spaces/crypts. Periods in which there are high sales of new long-term
contracts without either the provision of funeral services or the receipt of at
least 25% of the initial contract price on cemetery spaces or crypts will cause
fluctuations and lower gross profit percentages due to the Company's revenue
recognition policies.
The Company continues to monitor its expenditures for general operating
expenses, principally personnel costs and professional fees. The Company had
aggregate general and administrative expenses of approximately $344,000 for
Calendar 1999 as compared to approximately $481,000 for Calendar 1998. Interest
expense decreased by approximately $48,000, from approximately $236,000 for
Calendar 1998 to approximately $188,000 for Calendar 1999. This decrease in
interest expense is directly related to the 1998 debt restructuring of
short-term borrowings into a long-term debt agreement and/or periodic reductions
in the Company's line of credit during the year as cash collections on long-term
receivables for funeral services and/or cemetery spaces or crypts allowed during
1999. Depreciation and amortization is relatively constant based on the
completion of the Rosemont visitors center and related placement into service
during the first quarter of 1998 and some additions to property and equipment
during 1999.
The principal source of cash to support daily operations is the collection of
contractual receivables for both prearranged funeral services and the sales of
cemetery spaces or crypts. This area continues to experience growth in the
number and dollar amount of contracts placed in effect on a cumulative basis and
the related cash flows therefrom.
Earnings per share improved from $(0.09) per share for 1998 to approximately
$(0.06) per share for 1999.
Year ended December 31, 1998 compared to the year ended December 31, 1997
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The operations for the year ended December 31, 1998 compared to the year ended
December 31, 1997 represent the first full year of operations for the Company's
Rosemont subsidiary. Recognized revenues for 1998 were approximately $251,000 as
compared to approximately $89,000 for the preceding year. The Company's
facilities opened for business mid-first quarter of 1998 and was under
construction during periods prior to that. The Company recognizes revenues upon
the provision of funeral services, sale of funeral, cemetery or related
merchandise or upon the receipt of at least 25% of the initial sales price for
cemetery spaces and/or crypts.
The Company incurred cost of sales and providing services of approximately
$168,000 and $63,000, respectively, for the years ended December 31, 1998 and
1997. Costs related to cemetery merchandise and funeral services are recognized
at the time the service is provided. Sales commissions, for both at-need and
pre-need funeral sales and sales of cemetery spaces and/or crypts, are charged
to expense, less a nominal percentage, in the month the related contract is
recorded. The allocated cost of cemetery spaces and/or crypts is charged to
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operations at the time that at least 25% of the initial contract price is
received by the Company in cash. Total commissions expense, principally incurred
on the sales of pre-need contracts for funeral services and/or cemetery spaces
or crypts was approximately $78,000 and $45,000, respectively, during 1998 and
1997.
The Company realized gross profits of approximately $83,000 (33.09%) for
Calendar 1998 as compared to approximately $26,000 (29.25%) for Calendar 1997.
This change in gross profit percentage relates to the utilization of
management's revenue recognition accounting policies whereby aggregate receipt
of the initial sales price on the sale of cemetery spaces or crypts will trigger
the appropriate revenue recognition in the accompanying financial statements.
Further, the Company charges sales commissions for long-term contracts for
pre-need funeral services and/or cemetery spaces or crypts to operations at the
time the long-term contract is executed. Further, the opening of the Company's
visitor center and initial burial garden and Phase I of the Mausoleum during the
first quarter of 1997 allowed the Company to begin providing burial services and
experience the market acceptance of the Company's products and services.
Management anticipates future growth in revenue recognition as its long- term
contracts for cemetery space or crypt sales mature to the point where at least
25% of the initial sales price is collected by the Company and the recognition
of revenues for funeral services and interments increase as the Company's
position in its trade area matures.
Periods in which there are high sales of new long-term contracts without either
the provision of funeral services or the receipt of at least 25% of the initial
contract price on cemetery spaces or crypts will contribute to commissions being
charged to operations and, thereby, cause potentially significant fluctuations
in the Company's gross profit percentages.
The Company continues to monitor its expenditures for general operating
expenses, principally personnel costs and professional fees. The Company had
aggregate general and administrative expenses of approximately $481,000 for
Calendar 1998 as compared to approximately $423,000 for Calendar 1997. Interest
expense increased by approximately $192,000, from approximately $44,000 for
Calendar 1997 to approximately $236,000 for Calendar 1998. This increase in
interest expense is directly related to increase in debt during the last six
months of 1997 and into the first six months of 1998 to complete the
construction of the Company's visitor center and to support the initial
operations of the Company while the Company's pre-need long-term receivables for
funeral services and/or cemetery spaces or crypts matured to provide positive
cash flows. All short-term debt incurred in 1997 and 1998 was restructured into
a single long-term debt agreement in the third quarter of 1998, as discussed
below. Depreciation and amortization increased from approximately $45,000 for
1997 to approximately $130,000 for 1998 due to the Company's visitor center
being completed and placed into service during the first quarter of 1998.
During 1997 and 1998, the principal source of cash to support daily operations
was from short-term debt (which was subsequently restructured into a long-term
agreement) and from shareholder advances which were converted to additional
paid-in capital by the shareholder. Future cash requirements are anticipated to
be met through collections on the Company's long-term contracts for future
funeral services or the sale of cemetery spaces or crypts.
Due to increases in interest expense and depreciation during 1998, caused a
deterioration in the Company's earnings per share to $(0.09) per share for 1998
to approximately $(0.06) per share for 1997.
(4) Liquidity and capital resources
The Company is principally dependent upon cash flows related to the collection
of long-term contract receivables related to prearranged funeral contracts and
sales of cemetery spaces and/or crypts. The Company had negative cash flows from
operations of approximately $(530,000), $(735,000) and $(608,000) for the years
ended December 31, 1999, 1998 and 1997, respectively. The operating cash
deficits in excess of cash collected on long-term receivables for funeral
services and/or cemetery spaces or crypts were supported through advances on the
Company's bank line of credit or through controlling shareholder advances. The
Company completed the development of the initial cemetery garden, visitors
center and other funeral related buildings during 1998. The Company continues
the process of constructing Phase II to its Mausoleum and the second and third
cemetery gardens as internally generated funds and consumer demand permits.
Management is of the opinion that it has sufficient cemetery spaces and
mausoleum crypts to meet current demands and construct additional capacity
within the parameters of existing cash flows.
During the third quarter of 1998, the Company entered into a $2,220,000
long-term note payable to a bank. The note bears interest at 8.00% and is
payable in monthly installments of approximately $18,569, including interest.
Any unpaid principal and interest is due at the note's maturity in June 2003.
The note is secured by land, accounts receivable from prearranged funeral
contracts and cemetery property sales contracts and the personal guarantee of
the Company's controlling shareholder. The proceeds of this note were used to
refinance various short-term notes payable by the Company.
9
<PAGE>
The Company has identified no significant capital requirements for the current
annual period. Liquidity requirements mandated by future business expansions or
acquisitions, if any are specifically identified or undertaken, are not readily
determinable at this time as no substantive plans have been formulated by
management.
Additionally, management is of the opinion that there is additional potential
availability of incremental mortgage debt and the opportunity for the sale of
additional common stock through either private placements or secondary
offerings.
(5) Year 2000 Considerations
The Year 2000 (Y2K) date change is believed to affect virtually all computers
and organizations. The Company has undertaken a comprehensive review of its
information systems, including personal computers, software and peripheral
devices, and its general communications systems. The Company has no direct
electronic links with any customer or supplier. In addition, the Company held
discussions with certain of its software suppliers with respect to the Y2K date
change. The Company was not required to modify or replace significant portions
of its computer hardware or software and approximately $2,500, principally for
computer software and hardware, was expended for costs associated with the Y2K
date change compliance did not have a material effect on the Company's financial
position or its results of operations.
The Company monitored its significant suppliers, shippers, customers and other
external business partners related to their readiness for the Y2K date change.
To date, the Company has not experienced any adverse effect from the advent of
Year 2000. However, there can be no assurance that all of the Company's systems,
and the systems of its suppliers, shippers, customers or other external business
partners will not experience unforseen problems during the Year 2000.
10
<PAGE>
Item 7. Financial Statements
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
CONTENTS
Page
Report of Independent Certified Public Accountants F-3
Consolidated Financial Statements
Consolidated Balance Sheets
as of December 31, 1999 and 1998 F-4
Consolidated Statements of Operations and Comprehensive Income
for the years ended December 31, 1999 and 1998 F-6
Consolidated Statement of Changes in Shareholders' Equity
for the years ended December 31, 1999 and 1998 F-7
Consolidated Statements of Cash Flows
for the years ended December 31, 1999 and 1998 F-8
Notes to Consolidated Financial Statements F-9
F-2
<PAGE>
S. W. HATFIELD, CPA
certified public accountants
Member: American Institute of Certified Public Accountants
SEC Practice Section
Information Technology Section
Texas Society of Certified Public Accountants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
United Community Holdings, Inc.
(formerly Pacific Great China Co., Ltd)
We have audited the accompanying consolidated balance sheets of United Community
Holdings, Inc. (formerly Pacific Great China Co., Ltd) (a Nevada corporation)
and Subsidiary as of December 31, 1999 and 1998 and the related consolidated
statements of operations and comprehensive income, changes in shareholders'
equity and cash flows for each of the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Community
Holdings, Inc. (formerly Pacific Great China Co., Ltd.) and Subsidiary as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the years then ended in conformity with generally accepted
accounting principles.
S. W. HATFIELD, CPA
Dallas, Texas
March 17, 2000
P. O. Box 820395 9002 Green Oaks Circle, 2nd Floor
Dallas, Texas 75382-0395 Dallas, Texas 75243-7212
214-342-9635 (voice) (fax) 214-342-9601
800-244-0639 [email protected]
F-3
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
----------- -----------
<S> <C> <C>
Current assets
Cash on hand and in bank $ 8,583 $ 1,327
Restricted cash 58,920 52,795
Accounts receivable-at need, net of allowance
for doubtful accounts of $12,500 and $-0-, respectively 4,359 11,616
Other current assets 9,109 12,721
----------- -----------
Total current assets 80,971 78,459
----------- -----------
Property and equipment - at cost
Buildings 2,354,061 2,354,061
Roads, common cemetery areas and landscaping 338,504 326,930
Vehicles, equipment and office furnishings 248,635 192,252
----------- -----------
2,941,200 2,873,243
Accumulated depreciation (369,991) (205,451)
----------- -----------
2,571,209 2,667,792
Land 107,580 107,580
----------- -----------
Net property and equipment 2,678,789 2,775,372
----------- -----------
Other assets
Cemetery property - at cost 1,111,977 1,086,037
Prearranged funeral contracts 1,420,878 1,263,109
Long-term receivables for cemetery property sales 353,770 365,295
Other 14,597 18,844
----------- -----------
Total other assets 2,901,222 2,733,285
----------- -----------
TOTAL ASSETS $ 5,660,982 $ 5,587,116
=========== ===========
</TABLE>
- Continued -
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31, 1999 and 1998
LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998
----------- -----------
Current liabilities
Notes payable $ 400,000 $ 365,000
Current maturities of long-term debt 68,451 46,203
Accounts payable and other accrued liabilities 88,451 110,070
----------- -----------
Total current liabilities 556,902 521,273
----------- -----------
Long-term liabilities
Long-term debt, net of current maturities 2,136,045 2,152,358
Deferred prearranged funeral contract revenues 1,912,748 1,599,220
Deferred cemetery property sale revenues 393,728 363,370
Shareholder loan -- --
----------- -----------
Total liabilities 4,999,423 4,636,221
----------- -----------
Commitments and contingencies
Shareholders' Equity
Preferred stock - $0.00001 par value
10,000,000 shares authorized
None issued and outstanding -- --
Common stock - $0.00001 par value
50,000,000 shares authorized
8,000,818 shares issued and outstanding 80 80
Additional paid-in capital 2,954,705 2,777,070
Accumulated deficit (2,293,226) (1,826,255)
----------- -----------
Total shareholders' equity 661,559 950,895
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,660,982 $ 5,587,116
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
CONSOLIDATEDSTATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME Years ended
December 31, 1999 and 1998
1999 1998
----------- -----------
<S> <C> <C>
Revenues
Funeral revenues $ 172,327 $ 149,057
Cemetery sales 206,685 81,185
Finance charge and related revenues 21,442 20,415
----------- -----------
Total revenues 400,454 250,657
----------- -----------
Cost of sales and direct expenses
Allocated cost of cemetery spaces and crypts 22,566 15,325
Cost of cemetery merchandise and funeral services 99,757 74,046
Sales commissions 60,759 78,343
----------- -----------
Total cost of sales and direct expenses 183,082 167,714
----------- -----------
Gross profit 217,372 82,943
----------- -----------
Operating expenses
General and administrative expenses 343,725 480,777
Interest expense 188,394 235,993
Depreciation and amortization 164,746 129,693
----------- -----------
Total operating expenses 696,865 846,463
----------- -----------
Loss from operations (479,493) (763,520)
Other income (expense)
Interest and other income 14,575 32,522
----------- -----------
Loss before income taxes (464,918) (730,998)
Income taxes (2,053) --
----------- -----------
Net Loss (466,971) (730,998)
Other comprehensive income -- --
----------- -----------
Comprehensive Loss $ (466,971) $ (730,998)
=========== ===========
Net loss per weighted-average share
of common stock outstanding - Basic $(0.06) $(0.09)
===== =====
Weighted-average number of shares
of common stock outstanding - Basic 8,000,818 8,000,818
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY Years ended
December 31, 1999 and 1998
Additional
Common stock paid-in Accumulated
# shares Amount capital deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at
January 1, 1998,
as reported 7,999,818 $ 80 $ 5,438 $ (5,518) $ --
Acquisition of Rosemont
Gardens Funeral Chapel-
Cemetery, Inc. 1,000 -- 80,836 (1,089,739) (1,008,903)
----------- ----------- ----------- ----------- -----------
Balances at
January 1, 1998,
as restated 8,000,818 80 86,274 (1,095,257) (1,008,903)
Shareholder loans
contributed to additional
paid-in capital -- -- 2,690,796 -- 2,690,796
Net loss for the year -- -- -- (730,998) (730,998)
----------- ----------- ----------- ----------- -----------
Balances at
December 31, 1998 8,000,818 80 2,777,070 (1,826,255) 950,895
Shareholder contributions -- -- 177, 635 -- 177,635
Net loss for the year -- -- -- (466,971) (466,971)
----------- ----------- ----------- ----------- -----------
Balances at
December 31, 1999 8,000,818 $ 80 $ 2,954,705 $(2,293,226) $ 661,559
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss for the year $(466,975) $(730,998)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 168,786 131,881
Capitalized construction period interest -- (9,725)
Allocated cost of cemetery spaces and crypts 22,568 15,325
Allowance for doubtful accounts -- 12,500
Gain on sale of Trust fund marketable securities -- (28,927)
(Increase) Decrease in:
Accounts receivable 7,257 (24,116)
Other assets 3,612 (10,588)
Increase (Decrease) in:
Accounts payable and other accrued liabilities (21,516) 10,161
Deferred revenues (243,667) (100,605)
--------- ---------
Net cash used in operating activities (530,035) (735,092)
--------- ---------
Cash flows from investing activities
Transfers (to)/from trust funds and restricted cash (6,125) 1,023
Capital expenditures for property, equipment and cemetery property (95,381) (451,055)
Cash collected on prearranged funeral contract receivables 215,517 194,379
Cash collected on long-term receivables for cemetery property sales 225,792 103,284
--------- ---------
Net cash used in investing activities 339,803 (152,369)
--------- ---------
Cash flows from financing activities
Net activity on bank line of credit 35,000 365,000
Principal (paid) received on long-term note payable (2,448) (21,439)
Cash paid for loan fees -- (20,200)
Funding received on long-tern lease payables -- 42,532
Principal repayments on long-term lease payables (12,699) (1,153)
Contributed capital by shareholder 177,635 230,903
Net increase in shareholder loan -- --
--------- ---------
Net cash provided by financing activities 197,488 595,643
--------- ---------
Increase (Decrease) in cash 7,256 (291,818)
Cash at beginning of year 1,327 293,145
--------- ---------
Cash at end of year $ 8,583 $ 1,327
========= =========
Supplemental disclosure of interest and income taxes paid
Interest paid for the year $ 190,043 $ 243,530
========= =========
Income taxes paid for the year $ -- $ --
========= =========
Supplemental disclosure of non-cash investing and financing activities
Vehicle acquired with long-term debt $ 21,082 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS
United Community Holdings, Inc. (Company) was incorporated under the corporate
name of Professionalistics, Inc. on May 31, 1989, under the laws of the State of
Delaware, as a wholly-owned subsidiary of Halter Venture Corporation, a
publicly-owned corporation. The Company changed its name to Pacific Great China
Co., Ltd. on May 8, 1996 as a result of an action by the Company's Board of
Directors in anticipation of a business acquisition or merger transaction.
Subsequently, this anticipated business acquisition or merger transaction was
mutually canceled by both parties.
On December 17, 1998, the Company changed its state of Incorporation from
Delaware to Nevada by means of a merger with and into a Nevada corporation
formed solely for the purpose of effecting the reincorporation. The Articles of
Incorporation and Bylaws of the Nevada corporation are the Articles of
Incorporation and Bylaws of the surviving corporation. Such Articles of
Incorporation did not change the capital structure of the Company. The effect of
this action also changed the Company's name to United Community Holdings, Inc.
On November 19, 1998, the Company's then majority shareholder sold 7,200,000
shares of the 7,750,129 shares held by the then majority shareholder to an
unrelated third party in anticipation of a business combination transaction
whereby the Company would merge with and into a privately held operating company
during the first quarter of 1999.
On February 28, 1999, effective as of January 1, 1999, the Company exchanged
1,000 shares of restricted, unregistered common stock with its then current
majority shareholder for 100.0% of the issued and outstanding stock of Rosemont
Gardens Funeral Chapel-Cemetery, Inc. (a Mississippi corporation) (Rosemont). At
closing, Rosemont became a wholly-owned subsidiary of the Company
The acquisition of Rosemont by the Company was accounted in accordance with the
provisions of Interpretation #39 of Accounting Principles Board Opinion #16,
whereby the combination of entities under common control are accounted for on an
"as-if-pooled" basis with the Company being the parent company and Rosemont
being a wholly-owned subsidiary. These consolidated entities are referred to as
Company. Accordingly, the consolidated financial statements of the Company and
Rosemont represent the historical consolidated financial statements as of the
first day of the first period presented.
Rosemont Gardens Funeral Chapel-Cemetery, Inc. (Company) was incorporated on
March 4, 1994 under the laws of the State of Mississippi. The Company's
operations consist of a funeral home and cemetery operation in Jackson,
Mississippi. Company personnel at the funeral service location provide all
professional services related to funerals, including the use of funeral
facilities and motor vehicles. Funeral related merchandise is sold at the
funeral service location. The Company sells prearranged funeral services whereby
a customer contractually agrees to the terms, conditions and price of a funeral
to be performed at an unknown future date at the time the contract is executed.
The Company's cemetery provides cemetery interment rights (including mausoleum
crypts and lawn spaces) and certain merchandise including stone and bronze
memorials and burial vaults. These items may be sold on either a pre-need or an
at-need basis. Company personnel at the cemetery site perform interment services
and provide management and maintenance of the cemetery grounds.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-9
<PAGE>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and cash equivalents
-------------------------
The Company considers all cash on hand and in banks, certificates of
deposit and other highly-liquid investments with maturities of three months
or less, when purchased, to be cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the Company's
cash management policies.
2. Accounts receivable
-------------------
In the normal course of business, the Company extends unsecured credit to
its at-need customers which are regionally concentrated in and around
Jackson, Mississippi. Because of the credit risk involved, management has
provided an allowance for doubtful accounts which reflects its opinion of
amounts which will eventually become uncollectible. In the event of
complete non-performance, the maximum exposure to the Company is the
recorded amount of trade accounts receivable shown on the balance sheet at
the date of non- performance.
3. Inventory
---------
Inventory consists of funeral merchandise and cemetery property and
merchandise and are stated at the lower of cost or market, using the
first-in, first-out method.
4. Property, plant and equipment
-----------------------------
Property and equipment are recorded at historical cost. These costs are
depreciated over the estimated useful lives of the individual assets,
generally four (4) to twenty-five (25) years, using the straight-line
method.
Maintenance and repairs are charged to expense whereas renewals and major
replacements are capitalized. Gains and losses from disposition of property
and equipment are recognized as incurred and are included in operations.
For the years ended December 31, 1999 and 1998, depreciation expense of
approximately $164,540 and $128,453, respectively, was charged to
operations.
5. Funeral operations
------------------
Funeral revenue is recognized when the funeral service is performed. The
Company's trade receivables, when recorded, will consist principally of
funeral services already performed. An allowance for doubtful accounts will
be provided based on historical experience. In the event of complete
non-performance, the maximum exposure to the Company is the recorded amount
of trade accounts receivable shown on the balance sheet at the date of
non-performance.
F-10
<PAGE>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5. Funeral operations - continued
------------------
The Company sells prearranged funeral services and funeral merchandise that
provide for the delivery of price guaranteed services and merchandise at
prices prevailing when the agreement is signed. Revenues and related costs
associated with sales of prearranged funeral contracts are deferred and
later recognized when the funeral service is actually performed.
Prearranged funeral services and merchandise are generally financed either
through trust funds or escrow accounts, depending on State Regulatory
requirements, established by the Company or through insurance. Principal
amounts deposited in trust funds or escrow accounts are available to the
Company as funeral services are performed and merchandise is delivered.
These amounts may be refundable to the customer in those situations where
state law provides for the return of those amounts under the purchaser's
option to cancel the contract. Certain jurisdictions provide for
non-refundable trust funds or escrow accounts where the Company receives
such amounts upon cancellation by the customer.
The Company recognizes as revenue on a current basis all dividends and
interest earned, and net capital gains realized, by all prearranged funeral
trust funds or escrow accounts, except in those states where earnings
revert to the customer if a prearranged funeral service or funeral
merchandise contract is canceled. Principal and earnings are withdrawn only
as funeral services and merchandise are delivered or contracts are
canceled, except in jurisdictions that permit earnings to be withdrawn
currently and in unregulated jurisdictions where escrow accounts are used.
Commissions and other related direct marketing costs relating to
prearranged funeral services and prearranged funeral merchandise sales are
expensed as paid, subject to a nominal percentage which is withheld and
paid at the time the service is performed. Other indirect costs, including
telemarketing and advertising costs, are expensed in the period when
incurred.
Funeral services sold at the time of need are recorded as funeral revenue
in the period performed.
6. Cemetery operations
-------------------
Cemetery revenue is accounted for in accordance with the principles
prescribed for accounting for sales of real estate. Those principles
require, among other things, the receipt of a certain portion (generally
25%) of an installment sale price prior to recognition of any revenue or
cost on a contract. The Company recognizes income currently from
unconstructed mausoleum crypts sold to the extent the Company has available
inventory.
Costs related to the sales of cemetery mausoleum or lawn crypts include
property and other costs related to cemetery development activities which
are charged to operations using the specific identification method.
Allowances for customer cancellations are provided at the date of sale
based upon historical experience. Costs related to merchandise are based on
actual costs incurred or estimates of future costs necessary to purchase
the merchandise, including provisions for inflation when required.
Pursuant to applicable state law, all or a portion of the proceeds from
each sale of cemetery merchandise may also be required to be paid into
trust funds until such merchandise is purchased by the Company for the
customer. The Company recognizes realized trust income on these merchandise
trusts in current cemetery revenues as trust earnings accrue to defray
inflation costs recognized related to the unpurchased cemetery merchandise.
F-11
<PAGE>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
7. Cemetery operations - continued
-------------------
Additionally, pursuant to perpetual care contracts and laws, a portion,
generally 15.0%, of the total sales price of cemetery property is deposited
into perpetual care trust funds or escrow accounts. In addition, in those
jurisdictions where trust or escrow arrangements are neither statutorily
nor contractually required, the Company typically on a voluntary basis a
portion, generally 15.0%, of the sale price into escrow accounts. The
income from these funds, which have been established in most jurisdictions
in which the Company operates cemeteries, is used for maintenance of these
cemeteries, but principal, including in some jurisdictions, net realized
capital gains, must generally be held in perpetuity. Accordingly, the trust
fund corpus is not reflected in the financial statements, except for
voluntary escrow funds established by the Company. The Company recognizes
and withdraws currently all dividend and interest income earned and, where
permitted, capital gains realized by perpetual care funds.
A portion of the sales of cemetery property and merchandise is made under
installment contracts bearing interest at 9.75%. Finance charges are
recognized as a component of cemetery revenue under the straight-line
method over the terms of the related installment receivables.
Commissions and other related direct marketing costs relating to cemetery
spaces or mausoleum crypts are expensed as paid, subject to a nominal
percentage which is withheld and paid at the time the related sales
contract service is paid in full. Other indirect costs, including
telemarketing and advertising costs, are expensed in the period when
incurred.
7. Organization costs
------------------
Costs related to the formation and organization of the Company have been
capitalized and are being amortized over a five year period, using the
straight-line method.
8. Income taxes
------------
The Company filed a separate corporate federal income tax return through
December 31, 1998. Due to the change in control occurring in 1998, the
Company has no net operating loss carryforwards available to offset
financial statement or tax return taxable income in future periods.
Rosemont, with the consent if its former sole shareholder, elected under
the Internal Revenue Code to be taxed as an "Subchapter S corporation",
through December 31, 1998. In lieu of corporate income taxes, the
shareholder of a "Subchapter S corporation" is taxed directly on the
Company's taxable income. Accordingly, no provision, benefit or liability
for income taxes is included in the accompanying financial statements.
The Company uses the asset and liability method of accounting for income
taxes. At December 31, 1999 and 1998, respectively, the deferred tax asset
and deferred tax liability accounts, as recorded when material to the
financial statements, are entirely the result of temporary differences.
Temporary differences represent differences in the recognition of assets
and liabilities for tax and financial reporting purposes, primarily
accumulated depreciation and amortization, allowance for doubtful accounts
and vacation accruals.
As of December 31, 1999 and 1998, the Company's deferred tax asset is fully
reserved.
F-12
<PAGE>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
9. Income (Loss) per share
-----------------------
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common
stock equivalents (primarily outstanding options and warrants). Common
stock equivalents represent the dilutive effect of the assumed exercise of
the outstanding stock options and warrants, using the treasury stock
method. The calculation of fully diluted earnings (loss) per share assumes
the dilutive effect of the exercise of outstanding options and warrants at
either the beginning of the respective period presented or the date of
issuance, whichever is later. As of December 31, 1999 and 1998, the Company
had no warrants and options outstanding which could be deemed to be
dilutive.
10. Accounting standards to be adopted
----------------------------------
Upon the adoption of a formal stock compensation plan, the Company
anticipates using the "fair value based method" of accounting for
compensation based stock options pursuant to Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation".
Under the fair value based method, compensation cost will be measured at
the grant date of the respective option based on the value of the award and
will be recognized as a charge to operations over the service period, which
will usually be the respective vesting period of the granted option(s).
NOTE C - LONG-TERM RECEIVABLES
The Company's long-term receivables related to prearranged funeral contracts and
cemetery sales are anticipated to be collected pursuant to contractually
scheduled payments as follows:
Year ending
December 31, Principal due
------------ -------------
2000 $ 323,610
2001 254,629
2002 336,210
2003 184,017
2004 153,144
Thereafter 376,794
--------
Total $1,628,404
==========
NOTE D - CEMETERY PROPERTY
Cemetery property consists of the following at December 31, 1999 and 1998,
respectively:
1999 1998
---------- ----------
Developed cemetery gardens, net of
spaces sold with revenue recognition $ 82,802 $ 95,155
Cemetery gardens in development 27,390 26,698
Mausoleum crypts, net of crypts sold 344,311 306,710
Undeveloped 657,474 657,474
---------- ----------
Total $1,111,977 $1,086,037
========== ==========
F-13
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - NOTES PAYABLE
Notes payable consist of the following at December 31, 1999 and 1998,
respectively:
1999 1998
------- -------
<S> <C> <C>
$400,000 revolving line of credit payable to a bank. Interest at the Bank's
prime rate (8.50% at December 31, 1999). Interest payable monthly. Principal
and unpaid interest due at maturity in March 2000. Secured by land, accounts
receivable from prearranged funeral contracts and cemetery property sales
contracts and
the personal guarantee of the Company's shareholder. 400,000 365,000
--------- ----------
Total notes payable $ 400,000 $ 365,000
========= =========
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1999 and 1998:
1999 1998
------- -------
$2,220,000 note payable to a bank. Interest at 8.00%.
Payable in monthly installments of approximately
$18,569, including interest. Any unpaid principal
and interest is due at maturity in June 2003. Secured
by land, accounts receivable from prearranged funeral
contracts and cemetery property sales contracts and
the personal guarantee of the Company's shareholder. $2,156,808 $2,198,561
$21,082 installment note payable to a bank. Interest at
7.25%. Payable in monthly installments of approximately
$655, including interest. Final maturity in August 2002.
Secured by a vehicle. 19,008 -
$23,500 capital lease payable to a finance company.
Interest at 15.6%. Payable in monthly installments of
approximately $539, including interest. Final maturity
in December 2003. Secured by furniture and equipment. 18,571 -
$14,850 capital lease payable to a finance company.
Interest at 18.9%. Payable in monthly installments of
approximately $530, including interest. Final maturity
in December 2001. Secured by furniture and equipment 10,109 -
--------- ----------
Total long-term debt 2,204,496 2,198,561
Less current maturities (68,451) (46,203)
---------- ----------
Long-term portion $2,135,045 $2,152,358
========== ===========
</TABLE>
F-14
<PAGE>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - LONG-TERM DEBT - Continued
Future maturities of long-term debt are as follows:
Year ending
December 31, Principal due
2000 $ 68,451
2001 71,133
2002 69,036
2003 1,995,876
----------
Total $2,204,496
==========
NOTE G - CONSTRUCTION PERIOD INTEREST
Pursuant to Statement of Financial Accounting Standard No. 62, "Capitalization
of Interest Costs", the Company capitalizes interest incurred during the
construction period related to the development of the cemetery property and
funeral facilities. An analysis of interest both capitalized and charged to
operations during the years ended December 31, 1999 and 1998, respectively,
follows:
1999 1998
Interest capitalized $ - $ 13,742
Interest charged to operations - 235,993
------------ --------
Total interest incurred $ - $249,735
============ ========
F-15
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - TRUST FUNDS AND RESTRICTED CASH
Pursuant to State law or Company policy, certain portions of contracts related
to the sales of prearranged funeral services and funeral merchandise and
cemetery spaces, mausoleum crypts and related merchandise are deposited into a
common trust, as of December 31, 1999 and 1998 to provide funds for the
fulfillment of the underlying contracts and/or perpetual care of the cemetery
property. . Separate trusts for funeral contracts, cemetery contracts and
perpetual care were maintained through December 31, 1997,
The Company recognizes as revenue on a current basis all dividends and interest
earned, and net capital gains realized, by all prearranged funeral trust funds
or escrow accounts, except in those states where earnings revert to the customer
if a prearranged funeral service or funeral merchandise contract is canceled.
The Company recognizes realized trust income on these merchandise trusts in
current cemetery revenues as trust earnings accrue to defray inflation costs
recognized related to the unpurchased cemetery merchandise. The Company
recognizes and withdraws currently all dividend and interest income earned and,
where permitted, capital gains realized by perpetual care funds.
As of December 31, 1999 and 1998, the trust funds and resultant restricted cash
consist of the following components:
1999 1998
-------- --------
<S> <C> <C>
Trust cash $ 820 $ 13,735
Marketable securities, at fair market value 23,057 139,156
Unrealized (gains) losses on marketable securities 96,222 (19,877)
Amounts due to trust funds from future contract collections (61,179) (80,219)
------ -------
Restricted cash $ 58,920 $ 52,795
====== =======
Marketable securities are considered available-for-sale. All unrealized gains or
losses are excluded from earnings until such time that such gains or losses are
realized upon the sale of the underlying security. For purposes of computing
realized gains and losses, the specific identification method is used.
As of December 31, 1999 and 1998, the marketable securities held in the trust
funds consist entirely of equity securities and are summarized as follows:
1999 1998
-------- --------
Aggregate fair value $ 23,057 $139,156
Gross unrealized holding gains $ - $ 24,249
Gross unrealized holding losses $ 96,222 $ 4,372
Amortized cost basis $119,279 $119,279
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY HOLDINGS, INC. AND SUBSIDIARY
(formerly Pacific Great China Co., Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - SELECTED FINANCIAL DATA (Unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 and 1998, respectively.
Quarter ended Quarter ended Quarter ended Quarter ended Year ended
March 31, June 30, September 30, December 31, December 31,
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1999
- ----
Funeral revenues $ 43,391 $ 42,883 $ 42,285 $ 43,768 $ 172,327
Cemetery sales 77,295 35,147 39,790 54,453 206,685
Gross profit 75,297 34,255 42,058 65,762 217,372
Net earnings
from operations (81,122) (149,006) (122,802) (126,563) (479,493)
Basic and fully
diluted earnings
per share (0.01) (0.02) (0.02) (0.02) (0.06)
Weighted-average
number of shares
issued and outstanding 8,000,818 8,000,818 8,000,818 8,000,818 8,000,818
1998
- ----
Funeral revenues $ 22,286 $ 8,494 $ 87,743 $ 30,534 $ 149,057
Cemetery sales 13,095 60,363 (42,302) 50,029 81,185
Gross profit 14,104 23,650 9,055 36,134 82,943
Net earnings
from operations (187,603) (220,248) (220,511) (102,636) (730,998)
Basic and fully
diluted earnings
per share (0.02) (0.03) (0.03) (0.01) (0.09)
Weighted average
number of shares
issued and outstanding 8,000,818 8,000,818 8,000,818 8,000,818 8,000,818
</TABLE>
F-17
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
Item 9. Directors. Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The directors and officers of UCHI are listed below with information
about their respective backgrounds.
Name Age Position
- ---- --- --------
James F. Robinson 76 Chairman of the Board, President &
Chief Executive Officer
Jeffrey D. Aldridge 38 Vice President, Chief Operating
Officer and Director
Margaret R. Lauro 42 Secretary, Treasurer, and Chief
Financial Officer
Gary D. Thrash 49 Director
Directors are elected to serve until the next annual meeting of the shareholders
of UCHI or until their successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors. None of the Directors serve
as directors of any public or reporting corporations except as disclosed below.
Item 10. Executive Compensation
UCHI (including its subsidiary, Rosemont Gardens Funeral Chapel-Cemetery, Inc.
and its predecessor, Pacific Great China Co., Ltd.) neither paid nor accrued any
form of compensation in any amount to or for its executive officers or directors
for the fiscal years ended December 31, 1999, 1998 and 1997.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following information table sets forth certain information
regarding UCHI's common stock owned on March 27, 2000 by (1) any person
(including any "group") who is known by UCHI to own beneficially more than 5% of
its outstanding Common Stock, (2) each director and executive officer, and (3)
all executive officers and directors as a group.
Name and Address Shares Owned Percentage
- ------------------------------ ------------ ----------
James F. Robinson 7,201,000 90%
3935 Interstate 55 South
Jackson MS 39212
Kevin B. Halter, Sr. 275,065 3.4%
16910 Dallas Parkway, Suite 100
Dallas TX 75248
Kevin B. Halter, Jr. 275,064 3.4%
16910 Dallas Parkway, Suite 100
Dallas TX 75248
(None of the other officers and directors of UCHI or its subsidiary own any
stock in UCHI.)
Executive Officers and Directors as 7,201,000 90%
a group (five persons)
<PAGE>
Item 12. Certain Relationships and Related Transactions.
None
Item 13. Exhibits and Reports on Form 8-K.
Exhibits: None
Reports on Form 8-K : None
Exhibit
Number
- ------
3.1* Articles of Incorporation of UCHI
3.2* Bylaws of UCHI
27** Financial Data Schedule
* Previously filed on Form 10-SB
** Filed herewith
16
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
UCHI caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 28, 2000 UNITED COMMUNITY HOLDINGS, INC.
by: /s/ James F. Robinson
------------------------------------------
James F. Robinson, Chairman, President
and Chief Executive Officer
POWER OF ATTORNEY
United Community Holdings, Inc. and each person whose signature appears below
hereby designates and appoints James F. Robinson as his attorney-in-fact (the "
Attorney-in-Fact") with full power to act alone, and to execute and in the name
and on behalf of UCHI and each person, individually and in the capacity stated
below, any amendments (including post-effective amendments) to this Registration
Statement, which amendments may make such changes in this Registration Statement
as the Attorney-in-Fact deems appropriate, and to file each such amendment to
this Registration Statement together with all exhibits thereto and any and all
documents in connection therewith.
Pursuant to the requirements of the Securities Act of 1934, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
/s/ James F. Robinson March 28, 2000
------------------------------------------------
James F. Robinson, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
/s/ Jeffrey D. Aldridge March 28, 2000
------------------------------------------------
Jeffrey D. Aldridge, Vice President,
Chief Operating Officer & Director
/s/ Margaret R. Lauro March 28, 2000
------------------------------------------------
Margaret R. Lauro,
Secretary, Treasurer and Chief Financial Officer
(Principal Accounting Officer)
/s/ Gary D. Thrash March 28, 2000
------------------------------------------------
Gary D. Thrash
Director
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0001016130
<NAME> United Community Holdings, Inc.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 8583
<SECURITIES> 0
<RECEIVABLES> 16829
<ALLOWANCES> (12500)
<INVENTORY> 0
<CURRENT-ASSETS> 80971
<PP&E> 3048780
<DEPRECIATION> (369991)
<TOTAL-ASSETS> 5660982
<CURRENT-LIABILITIES> 556902
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 661479
<TOTAL-LIABILITY-AND-EQUITY> 5660982
<SALES> 400454
<TOTAL-REVENUES> 400454
<CGS> 183082
<TOTAL-COSTS> 696865
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188394
<INCOME-PRETAX> (479493)
<INCOME-TAX> 2053
<INCOME-CONTINUING> (466973)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (466973)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
